Mortgage loan application volume surprised no one with another week of declines, accompanied by the 10th consecutive week of rising interest rates, according to the Mortgage Bankers Association’s weekly survey.
Interest rates finally topped the dreaded 7% mark, reaching 7.16%. This is their highest point since 2001.
The adjusted Market Composite Index, a measure of mortgage loan application volume, dropped by 1.7%. Application activity is at its slowest pace since 1997.
The adjusted purchase index fell 2%, while the unadjusted purchase index decreased by 3% and was 42% lower YOY.
Purchase applications are now at their slowest pace since 2015, 40% slower than a year ago.
“Despite higher rates and lower overall application activity, there was a slight increase in FHA purchase applications, as FHA rates remained lower than conventional loan rates,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.
The FHA share of total applications rose from 13.6% to 13.9%, with an average interest rate of 6.79%.
“MBA’s forecast expects both economic and housing market weakness in 2023 to drive a 3% decline in purchase originations, while refinance volume is anticipated to decline by 24%,” Kan said.
Home prices are already correcting, having peaked in June of this year.
Fannie Mae expects them to continue sinking and, alongside the housing slowdown, for the U.S. economy to tip into a recession at the beginning of 2023.
“We expect the slowdown in housing to continue through 2023 as affordability constraints mount for potential homebuyers, and considering, too, that refinance activity has been significantly curtailed by the rise in mortgage rates,” Doug Duncan, Fannie Mae senior vice president and chief economist, said.
Economists are anxious about the housing market. Jeremy Siegel recently predicted that home prices will suffer their second-worst crash since World War II in the next 12 months.
Kan, Duncan, and Siegel are not alone in their predictions but some experts still say the market will not crash the way it did in 2008.
At the National Association of Real Estate Editors conference earlier this month, Chief Economist Lawrence Yun of the National Association of Realtors agreed that next year unit sales will be down if interest rates remain high.
But Yun said history is not bound to repeat itself because there is not the same level of inventory on the market.
“The repeat of a 30% price decline is almost highly, highly unlikely. Will some markets see a price decline? Yes. Because I believe that next year, nationwide, price forecasts will be about zero. That means half of the country will see some price decline. The other half of the country will see some price increases,” Yun said.
Yun said Midwest and Southern states are more likely to weather the storm, while markets such as California are more likely to see a price decline.
The survey shows that the refinance index ticked up by 0.1% and was 86% lower than at the same time last year.
Refis made up 28.8% of total applications.
The ARM share of activity dipped to 12.7% of total applications, hovering just under its highest share since March 2008.
The VA and USDA shares remained unchanged at 10.7% and 0.5%, respectively.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased from 6.94% to 7.16%.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances rose from 6.31% to 6.53%.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased from 6.63% to 6.79%, and for 5/1 ARMs rose from 5.65% to 5.86%.
Editor Kimberley Haas contributed to this report.
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